Diary of a Fixer-Upper: Refinancing Take One

I almost started out this post with something like, “And then there was another bump in the road.” But I quickly realized that I could start every week’s post like that. If there weren’t hiccups, it wouldn’t be a renovation.

So yeah, there was another little setback. After I did the work under my construction loan, I wanted to refinance to bring down my FHA 203(k) interest rate. The final step of my construction loan was to have an inspector approve my work.

My mortgage company set up the appointment, and except for a few details that the inspector was nice enough to trust I’d complete (the bathroom was still missing a light fixture), he rubber-stamped my form and sent it off to my lender. A week later I got the check for the second half of the loan—and blissfully paid off those credit cards—and geared up to start refinancing.

For some reason I had it in my mind that refinancing would be easy. As long as my credit was still good (and it was), my lender had made it sound like refinancing would involve looking up current market rates and then signing a few papers and—voila—a fancy new mortgage with a low interest rate! If you can’t hear that sound, it’s me laughing at how naïve I was.

First I got an estimate from my lender, telling me what I qualified for, given the new appraisal on my house. The estimate she sent me read, “Appraisal: $350,000.” Although I’m sure most people refinance with their lender to simplify the process, I’d had a few problems with mine and decided to shop around. I put my information into Wells Fargo’s Web site and waited for a nearby rep to call. I’m sure it’s a fine bank, but the guy they sent me was . . . a little nuts. He wanted to get $300,000 of my business but would send near unreadable e-mails in sentence fragments with all lowercase letters. And he was the smarmiest of smarmy agents. No thank you.

The other lender I approached was much easier to work with. I sent them the appraisal from my current lender, they gave me a good rate, and I liked the agent—I was pretty much sold.

All this sounds easy enough, but it involved about 10,000 phone calls and e-mails to re-establish every detail of my credit profile and the state of the house. It was enough to give me stress headaches. I broke out in a cold sweat every time I heard the words “additional closing costs” or checked the news for the latest in the housing-market crisis.

Once I’d worked out a good deal, I called my current lender to see if they’d beat it. This call epitomized why I regretted using this company in the first place. I found out that it had taken liberty with the “appraisal” used for my estimate. The number came from my real-estate agent, who had not even been to my house since I bought it but had “guessed” based on the photos I’d posted online. Moreover, after my lender asked me a couple key questions, it turned out my house probably wouldn’t even pass inspection. (I’d torn out the existing kitchen counters, not realizing this is some sort of code violation.) Worse yet, the $350,000 appraisal “might,” she told me, “have been stretching it.” Unless I wanted to bring another ten grand to the table, it absolutely had to appraise that high so that I would have enough equity.

When financing your house, it’s not enough to understand the mortgage language; you have to be savvy enough to know what these people are leaving out. It took almost a month before I got this information out of my lender, turning my situation upside down.

Given these new details, it no longer seemed wise to refinance right away. I had some money set aside for closing costs, but I decided I would much rather put it into the renovations. I knew my house would appraise for even more than $350K when I was finished, so investing it in the house and creating more equity seemed smart.

And, to be honest, I was quickly getting over my head with the refinancing—I saw myself ready to sign on any dotted line just to get it done with. After a month of nightmarish research and discussions with friends and family, I decided to hold off on refinancing and do the next renovation project: the kitchen. Stepping back and waiting a few more months to get some perspective and knowledge seemed much wiser.